Salary Sacrifice Car Guide

How does salary sacrifice work for a car

To appreciate the benefits of salary sacrifice cars it’s important to understand how the scheme works. When you participate in a salary sacrifice EV scheme, you agree to exchange a portion of your pre-tax salary for an electric car lease.

Here's how the savings are made:

Tax efficiency: Your car lease is funded using contributions from your pre-tax salary. This brings down your annual income and means you’ll pay less tax to HMRC and lower your National Insurance contributions.

Increases purchasing power: Companies have higher purchasing power than individual employees, which means they can negotiate discounts and secure more favourable terms on EV leases. This can often translate to lower monthly payments than if you were to lease an EV privately.

All-inclusive packages: Most EV lease schemes include extras like insurance and maintenance, a benefit that makes budgeting simple and predictable.

Low emissions tax perks: Electric cars often have lower Benefit in Kind (BIK) tax rates, which can unlock additional tax savings for employees.

Salary sacrifice car for employers

Salary sacrifice EVs don’t just benefit employees. Benefits for employers include attracting high-calibre employees, improving staff retention and reducing National Insurance contributions.

Offering EV salary sacrifice schemes can also help companies meet Corporate Social Responsibility (CSR) goals by reducing the carbon emissions of employees and promoting sustainable transport.

Here's a quick look at how schemes work:

Implementation: The employer sets up the scheme, usually through a third-party provider like Leasing Options. This can involve pre-approving a list of vehicles that will be made available to employees.

Employee communication: Employees are informed about the scheme and invited to take part.

Administration: Employers handle the administrative aspects of EV salary sacrifice leases, including payroll deductions and reporting to HMRC.

Want to know more about the process of setting up salary sacrifice EV schemes? Contact our expert salary sacrifice team to find out more.

Salary sacrifice car for employees

Taking advantage of a salary sacrifice EV scheme is a simple and straightforward process for employees:

Enrolment: Express your interest to your employer and formally enrol in the scheme.

Car selection: Choose an EV from the approved list provided by your employer or leasing partner.

Agreement: Sign the salary sacrifice agreement, which outlines the terms and conditions.

Tax considerations: Be aware of the BIK tax implications. While these are lower for electric cars, they can still impact your take-home pay.

Salary sacrifice car scheme process

Still not sure exactly how salary sacrifice car schemes work? We’ve broken it down into five simple steps:

1. Company enrols in the scheme

The employer decides to implement the scheme and partners with a third-party leasing provider.

2. Employee signs on

Employees express their interest, enrol in the scheme and select an EV from the approved list.

3. Paperwork is signed

Both employer and employee sign the salary sacrifice agreement.

4. Payments are deducted

Monthly payments are deducted from the employee's gross salary to fund the EV lease.

5. Lease ends

When the lease ends employees can choose to return the car or sign a new lease and receive another car.

Benefits of a salary sacrifice car

Participating in a salary sacrifice car scheme offers a laundry list of benefits for employees. Here are some of our favourites:

• Increase take-home pay: Salary sacrifice car schemes are funded by your pre-tax income. This brings down your annual salary which can lower your income tax and National Insurance contributions
• Eco-friendly: Beyond financial savings, EV salary sacrifice schemes are a great way to reduce your carbon footprint
• Easy budgeting: Electric car salary sacrifice leases eliminate the unexpected expenses associated with car ownership. Instead, things like insurance and maintenance are written into the lease and rolled into easy monthly payments
• No initial outlay: Salary sacrifice schemes allow you to sidestep the hefty upfront payments often required when buying or leasing a car independently

Considerations of salary sacrifice

Salary sacrifice car schemes come with many benefits, however, it’s important to consider a few factors before signing a contract.

• Credit availability: Participating in schemes can affect your borrowing power, as your take-home salary will appear lower on paper
• Leaving the company: If you leave your employer, you might be required to continue paying for the car or settle the remaining lease balance
• BIK tax: While BIK tax rates for EVs are lower, they still apply and should be considered when calculating the total cost of your salary sacrifice lease

What's included with a salary sacrifice car?

Salary sacrifice electric car schemes often include comprehensive packages with:

• Vehicle maintenance
• Insurance
• Road tax
• Breakdown cover

Who can take out a salary sacrifice car?

To be eligible for a salary sacrifice car, you’ll need to meet the following criteria:

Employed: You must be an employee of a company that offers a salary sacrifice car scheme.

Driver's license: You’ll need a valid UK driver's license to be eligible for a salary sacrifice car.

Acceptable credit history: Employers and leasing partners may check your credit history as part of the application process. Your credit doesn’t have to be top-tier but the better your score, the more likely you are to be approved.